Asian Stocks Drop in U.S. on Inflation Risks
Asian stocks are set to follow their U.S. counterparts lower after a selloff in government bonds intensified on bets the Federal Reserve won’t cut interest rates again before July due to inflation risks.
Equities opened lower in Sydney and futures signaled declines in Tokyo and Hong Kong. U.S. contracts were steady after the S&P 500 fell more than 1% following a report on U.S. service providers that showed a price gauge at its highest since early 2023. A decline in big tech weighed heavily on trading, with Nvidia Corp. plunging more than 6%.
Treasury bonds fell across the curve, and a $39 billion sale of 10-year notes yielded the highest yield since 2007.
“Rising yields aren’t necessarily a problem for stocks unless, of course, the economy starts to fail. Then all bets are off,” said Kenny Polcari at SlateStone Wealth. “But rising yields will be a problem if inflation shows signs of getting worse.”
Traders, who until late September had fully priced in another Fed rate cut in March, are dropping bets that there would be a rate cut through the second half of the year. Separate data on Tuesday showed job openings rose to a six-month high in November, driven by a surge in business services — while other industries showed more mixed demand for workers.
For Mark Streiber at FHN Financial, the latest U.S. services report supports the Fed’s recent communication that rate cuts are likely to slow in 2025 because of risks to prices. Atlanta Fed Bank President Raphael Bostic said officials should be cautious given the uneven progress in lowering inflation. “The Fed is likely to move from cutting rates at every decision, as they did between September and December, to pausing between cuts in 2025,” said Bill Adams at Comerica Bank.
The S&P 500 fell 1.1%. The Nasdaq 100 fell 1.8%. A measure of the “Magnificent Seven” megacaps fell 2.5%. The yield on the 10-year Treasury rose six basis points to 4.68%. In the UK, the 30-year yield hit its highest since 1998, raising the prospect of tax hikes to meet fiscal rules. Bitcoin fell below $100,000.
Oil rose for a second day in early trading on Wednesday after an industry report showed another drop in U.S. inventories. Australia’s 10-year yield mirrored the U.S. move, rising five basis points.
Source: Bloomberg
